Iranian Journal of Accounting, Auditing and Finance

Iranian Journal of Accounting, Auditing and Finance

Audit Fees under Dual Earnings Management: The Moderating Role of Accruals in the REM-Audit Fee Nexus

Document Type : Original Article

Authors
Seyed Hamid Jalali 1
Hassan Hemmati 1
Omid Faraji 2
Hossein Jabbari 1
1 Department of Accounting, Kashan Branch, Islamic Azad University, Kashan, Iran
2 Accounting and Financial Management Department, College of Farabi, University of Tehran, Qom, Iran
10.22067/ijaaf.2026.47628.1595
Abstract
As financial reporting becomes increasingly complex, both real earnings management (REM) and accrual-based earnings management (AEM) pose challenges for auditors in risk assessment and fee determination. While prior studies have examined these strategies in isolation, scant attention has been paid to their concurrent use, dual earnings management, particularly in audit pricing. Existing literature lacks analyses of the REM–AEM interaction within moderating frameworks, leaving unclear how AEM intensity moderates the REM–audit fee relationship. This gap impedes understanding of audit pricing in information-asymmetric settings and may lead to suboptimal audit judgments. To address this gap, this study investigated how AEM moderates the relationship between REM and audit fees. The study offered three novelties. First, it is the first in the domestic literature to examine the REM–AEM interaction. Second, it treated AEM as a moderator, revealing how auditors respond to compounded informational risk. Third, it provided evidence from the Iranian capital market, offering a practical framework for audit risk assessment in low-transparency environments. Using data from 72 firms listed on the Tehran Stock Exchange (2013–2025), results indicated a positive and significant relationship between REM and audit fees. A negative and significant interaction between REM and AEM emerges only when AEM is measured by the Kothari model. Results showed that using both strategies simultaneously affects auditors’ risk perceptions and weakens REM’s direct impact on audit fees. The study contributed to audit pricing theory by bridging behavioral and signaling perspectives, and presents practical implications for auditors as well as regulators and standard-setters
Keywords
Accrual Earnings Management
Audit Fees
Dual Earnings Management
Real Earnings Management
Moderating Role
Subjects
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